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InvestmentNews Pegs Reg BI and Self-Regulation

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This article originally appeared on InvestmentNews as an Editorial piece under the title: Success of SEC Advice Reform will Depend on Industry Actions

The moment has finally arrived. After about 14 months, 6,000 comment letters, and many investor roundtables and individual meetings with SEC staff and commissioners — not to mention dozens of InvestmentNews articles — the 1,363 pages of SEC advice reform rules and interpretations are final.

Though the regulations encompass the most significant changes to investment advice standards in more than two decades, it’s hard to say at this early stage just how much broker and adviser interactions with clients will shift as a result. And if they shift, in which direction.

Codifying the idea of putting a client’s best interest first into regulation is important. Though the rules lack many specifics and rely heavily on the word “flexibility,” the fact that considerations of the costs of various products and accounts are required is key. Rolling over a client’s workplace retirement account into an individual retirement account was particularly highlighted in Regulation Best Interest as a material conflict. Broker-dealers will now be required to “establish, maintain and enforce written policies and procedures reasonably designed to identify and at a minimum disclose, or eliminate, all material conflicts that are associated with a recommendation.”

It’s the disclosure part that’s tricky though. The effectiveness of disclosures will depend greatly on how they are written and presented. Will they be used to truly arm an investor with the necessary information they need to make smart choices about the conflicts of the financial professional before them? Or will those disclosures be written simply to check off a compliance box that information was provided, while ensuring consumer haze remains to obscure the conflict?

The upshot of these rules and interpretations is that a tremendous weight has been put on the industry to rise to a standard of best interest. There is relatively little that is prescriptive in the language; there is a lot about what is “reasonable.” There’s nothing wrong with principles-based rules, as long as there are principled people to carry them out. It ultimately will be up to brokers, brokerage firms, financial advisers and advisory firms whether this tremendous effort for advice reform is meaningful or not.

Dan Moisand

 

Dan Moisand is a nationally recognized fiduciary fee-only financial planner, an Institute Real Fiduciary™ Advisor and Chair-elect of the CFP Board.

The Institute has enshrined the ‘Moisand Rule’ on fiduciary practices. It is basic and is more important today than ever: “You have to avoid conflicts. If I avoid a conflict, I don’t worry about it.”

Watch the video of Moisand speaking here.

Bob Veres

 

Bob Veres is a long term observer of financial planning. His Newsletter, “Inside information” Is a staple of leading planners. In the May edition he writes about fiduciary and the Institute.

"But a much bigger point is that the fiduciary standard—as Knut Rostad of the Institute for the Fiduciary Standard has pointed out—has been determined by the Supreme Court (1963 ruling) to be at the very heart of the Investment Advisers Act of 1940. It is the foundation of what it means to be an RIA registered with the SEC instead of a tipster or a tout."

- Bob Veres, Parting Thoughts ... The SEC's Own Compliance Culture